FICO, a credit agency in the United States, has just released stats on American Credit scores. Guess what? They are sinking. I feel compelled to follow that sentence with a big fat duh. I mean, with the economy in a downswing is it any big surprise, really, that the Americans are putting less effort into solidifying their credit scores than they are, say, feeding their families?
Still, the stats do show an alarming score of below 600 (that is bad, btw) for pretty much one quarter of Americans.
So I guess the big question now, for people who are keeping score, anyway, is how do Canadian credit scores measure up against the US? Well according to TransUnion LLC and Equifax Inc., our credit scores have also been dropping to some uncomfortable levels. What the actual stats are, I can’t say but, according to the title of the Financial Post Article Canadians Score Better Than Americans On Credit, we…umm…score better on credit.
The same article states: Bank of Montreal senior economist Earl Sweet believes Canadians are better off than Americans. “Canadians on average have about 67% equity in their home. That compares with under 40% in the U.S.”
So what does home equity have to do with it? I mean, credit scores are built on the little things., like how much money we owe (compared to how much we make), how good we at paying our bills on time, etc. Well, logic (theoretical logic) dictates that the more home equity you have in your home, the less debt you have accumulated. Plus, think about it – the more home equity you have, the more freedom you have to acquire low interest debt that is much easier to pay off, and at a faster rate, than high interest debt. In the grand scheme of things, home equity loans are a lot smarter than credit card debt.
So will Americans ever catch up to Canadians in terms of being on the good side of credit lenders? Probably, but why does it matter? Unless you are one of those people who has to make everything a contest, in which case by all means draw up a comparison chart, the best motivator for keeping a good credit score is obvious; lower mortgage rates, more money in your pockets (and investment), and an easier financial life.
